In late January, Defra quietly updated water company insolvency laws to provide more options for special administrators to handle debt effectively, decreasing the likelihood of the Government having to step in and nationalise.
Instead, companies would be able to enter administration, restructure borrowings and exit as a “going concern”, potentially allowing existing shareholders to retain a stake.
Curiously, Ofwat declined to comment on the first major update to the special administration guidance since privatisation. As the prospect of insolvency lingers still for some companies, the ability to not pass comment will become increasingly difficult as pressure grows.
While water governance is often seen as a dry subject, it often finds itself brought up as a fundamental issue in relation to any of the problems that the water industry faces – from droughts to floods, bills to bonuses.
To critics on the left and the right, the ownership and governance of the UK’s water companies is one of the key causes of failures when they do occur. It is also regarded as the reason for a lack of long-term planning – as one South West Conservative MP pointed out in a Westminster debate, no new reservoirs had been brought forward in his area since privatisation.
There are persistent concerns raised in Parliament about whether and to what extent water companies prioritise the public interest, especially in terms of affordability, infrastructure development, and environmental responsibility.
Striking a balance between shareholder returns and meeting the needs of local communities is a delicate challenge for the governance of water companies, and transparency is key. While Labour is not hotly pursuing a path of re-nationalisation, the scope of intervention on issues such as environmental performance and resulting bonuses will continue to draw the attention of stakeholders, particularly given the precedent of intervention on energy company profits.
In navigating these challenges, clear and consistent communication is essential.
Reports of industry-driven reform to enable companies to remain in private hands, but with explicit social value threaded through their operations, were promising in the past year.
However, these are quickly replaced by stories about backdoor conversations with regulators on customer communications. In a busy media and political cycle, the momentum is too often easily lost.
In a year of change, the water industry must not let events distract from the long term strategic thinking required to secure a sustainable future for the sector.
Companies need to ensure that the path they follow is the right one for all stakeholders, from their shareholders, to politicians, to their customers.
Fear of a negative perception and reaction must not undermine the need to understand and engage, and companies need to be armed with these insights when making their next move in 2024.
